Doing Good While Doing Well

In today’s tumultuous economic climate, investors may feel a natural urge to find a safer haven in which to park their money and wait out the cascade of financial misery. But for many, a safer investment isn’t enough. “What we find consistently in our clients is that they have a desire to do the right thing and they have a desire to make a difference in the world,” says Beth Jones, a registered life planner and owner of Third Eye Associates.

Enter the concept of Socially Responsible Investing, also known as Sustainable Investing. “Sustainable and Responsible Investing, which we generally call SRI, is an investment discipline which in addition to looking at traditional financial criteria, also looks at environmental, social, and corporate governance criteria in selecting companies for investing portfolios and analyzing investments,” explains Meg Voorhes, deputy director and research director at The Forum for Sustainable and Responsible Investment (formerly the Social Investment Forum), a nationwide association of professionals, firms, institutions, and organizations engaged in socially responsible and sustainable investing. SRIs have grown in recent years and now make up almost 10 percent of the market. “There are funds that have become popular in the past 10-20 years as people become more conscious about the environment, about consumer protection, human rights, that sort of thing.” Says Louis F. Conti, investment advisor representative for Ulster Savings Bank. “They’re willing to possibly give up a little return to do a little more in other areas.”

According to Jeffrey Scales, a certified financial planner and managing principal of JSA Financial, SRIs offer investors more than peace of mind; they offer a strong financial return. “We have found for years now that our clients who have invested with a more sustainable approach have done as well, and in many cases better, than those portfolios that really didn’t factor that in any way,” he says. “It’s not just a niche marketing strategy, or some kind of alternative investing category. It’s actually a viewpoint on what’s the best way to achieve a [strong] market performance over the long term.” Scales agrees. “[In the past], SRI was defined in terms of what it didn’t invest in,” he says. “But sustainable investing is more about what you are investing in. When companies are functioning properly and markets respect how they interact with their workers, their customers, their community, and the overall environment, they are going to be more durable and more sustainable in the long run.”

The key for sustainable investing is a company’s ESG values, which stands for environment, social welfare, and corporate governance. A company that has healthy practices in these three areas is seen as a company that is a good bet to be around for the long haul. Scales uses the example of water, a precious and dwindling resource heavily used in manufacturing. “If a company that deals with manufacturing doesn’t have some kind of sustainability report [dealing with their water usage], that really looks at the environmental factors, then that company is at risk.”

How a company fares in the ESG categories can tell a lot about how it will weather a financial storm, such as the current climate. “Our investors are looking for companies that are well managed, that are looking at a broad array of issues such as environmental management, reducing their waste, reducing their energy levels, promoting energy efficiency,” says Voorhes. “In terms of the human component, making sure that companies have good labor practices, have a workforce that is inspired to work for the company, is loyal. That they don’t have labor problems or labor abuses in the supply chain.” A company with good labor practices and solid environmental management has less of a chance that they’ll end up with an unexpected disaster that could decimate their stock price.

An investor looking to enter the SRI world today has a lot more options than they did just a few years ago. “It used to be that there weren’t a lot of options for socially responsible investing, or they were mediocre options.” Says Jones. “Now there’s a full field of very competitive companies that are doing the right thing.” Many mutual funds now take sustainable investment practices into account, and many financial advisors now work with SRIs every day and are very knowledgeable. “One of the things to make it a lot easier for you is, you can look to mutual funds that offer sustainable investment as part of the criteria they use for asset management,” says Scales, who points to such SRI mainstays as Calvert Investments, Parnassus Investments, PAX World Investments, and Portfolio 21 Investments as some quality examples of companies specializing in sustainable investing.

The Forum for Sustainable and Responsible Investment website (www.ussif.org) is a wealth of information for anyone interested in SRIs. “We list our members’ mutual funds so you can see the performance of these funds over the last year, last three years, last five, and last 10 years,” says Vorhees. In addition, many of The Forum’s publications are available for free download, including the executive summary of their 2010 Socially Responsible Trends in the United States. The site also includes the ability to look up mutual funds by issue, so if you have an issue that is important to you, you can find a fund that works with companies dealing directly with that issue.

So there is no longer a need to choose between making money and making the world a better place. “Those sustainable investments have to compete, dollar for dollar,” says Scales. “They have to be performance competitive with the non-ESG type of investments.” An SRI fund that doesn’t perform doesn’t last, plain and simple. When Jones explains this to her clients, they are generally become quite enthusiastic about investing sustainably. “Most people have thought that there wasn’t a possibility to do both and still make a living,” she says. “So when it comes to investments, people are often thrilled to find out that they can invest with their heart and still get a very respectable returns. My personal opinion is that if we’re not [investing responsibly], then we’re asleep at the wheel. It’s important that we do the right thing at every level. If we’re not doing that, then we’re part of the problem.”